We follow four main indicators, and they usually guide us in the correct direction of the markets. As noted elsewhere in this issue, price is the most important indicator of all (in this case, the price of the Standard & Poors 500 Index [$SPX]). However, the others – equity-only put-call ratios, market breadth, and volatility indices – are important, too. Usually, we want confirmation from price before acting on opposing signals from the other areas.
$SPX has now traded at a new all-time intraday high for the last three days, and it closed at a new all-time high the last two. Those new highs have been confirmed by some of the other indicators, but some are still on sell signals. $SPX has support at 1950, and that has proven to be very strong.
Equity-only put-call ratios remain on sell signals. They have been steadily rising for nearly two weeks.
This week’s feature article is a bit longer than usual, but with volatility at such low levels, and so many traders and media talking about it, I wanted to describe how volatility hedged positions should be viewed.
For the first time in a while, some sell signals are beginning to creep into our indicators, and the broad stock market is selling off. So far, the damage has been controlled, but Thursday's sharply down opening shows that there is the potential for some heavy selling if there is perceived danger. $SPX has support at 1950 and 1925, and even at 1900 below that.
Equity-only put-call ratios are in agreement, and they are both on sell signals.
The market finally suffered some selling yesterday. This didn’t cause any more of our indicators to turn negative, but breadth indicators are getting close. Even so, we have enough sell signals in place to call for at least a short-term correction. One of the more bullish things, though, is that the parade of “analysts” on CNBC is uniformly bearish. This includes a number who are perma-bulls for the most part; but now they are calling for a correction.
$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.
The feature article details a shortterm seasonal systems that lasts for just one week. It actually pertains to the week that is just ending, and we outlined the system in last week’s Hotline, using it to hold onto SPY puts. The full explanation of the system is in this issue, and we will employ this system again in the future.
There is support for $SPX at or just below 1950. In addition, there is support at 1925 (the lows from a couple of weeks ago), and then there is major support at 1900.
The one deteriorating area among our main indicators is the equity-only put-call ratios. Both have started to rise over the past three days, and the weighted ratio is now officially on a sell signal.
Once again we see that nothing really can stop this bullish market. This week, there were three separate pieces of news/data that theoretically could have done so, but they had little effect.
So $SPX is now trading at new all-time highs. The "old" support level at 1900 is still in place, and now there is support at 1925 (last week's lows).
Equity-only put-call ratios remain solidly bullish, although they are very low on their charts (Figures 2 and 3) and are thus reaching overbought status.
...Volatility indices ($VXST, $VIX, and $VXV) literally collapsed yesterday. They were down in the morning after Tuesday’s somewhat surprising strength, but on Wednesday afternoon, they were really crushed. Short-term vol ($VXST) was down 16.7%, while $VIX was down 12% – pretty big moves. This has several implications. The first is that our “bearish demarcation” line of 13 for $VIX was pretty good.
